Orange County FHA, VA & First Time Buyer Loan Information: New Appraisal Ordering Process for FHA Loans and its Effect on Orange County Home Buyers

My goal is to provide valuable information for home buyers, both First Time Buyers and Move Up Buyers. This information will be about loan programs such as FHA ,VA, Conventional Fannie Mae and Freddie Mac, Reverse Mortgages, and even Portfolio Jumbo programs. I will also touch on tax advantages of homeownership, Rent vs. Own analysis, and any other aspect of loans and home ownership that will be of interest to Orange County home buyers and homeowners.

The new appraisal ordering process for FHA loans will have some affect on Orange County home buyers using FHA financing. The details of the new FHA appraisal ordering process were issued in Mortgagee Letter 2909-28.

FHA's Version of HVCC

in mid 2009 HVCC went into effect for conventional Fannie Mae and Freddie Mac appraisals. HVCC stands for Home Valuation Code of Conduct. While not a popular decision, the HVCC policy took the appraisal ordering process out of the hands of the loan officer. AMC's, or Appraisal Management Companies, are now how appraisals are ordered. The loan officer is not allowed to talk to the appraiser, especially about an expected property value.

FHA appraisals have always been ordered through FHA Connection. The lender has been allowed to choose an appraiser who is familiar with certain cities or neighborhoods, and typically an appraiser who can be trusted to complete the appraisal quickly. The new process will take the appraisal ordering out of the lenders hands, much like the HVCC process.

Key Points for the new Policy

Prohibition of commission based lender staff from the appraisal process

Prevention of improper influences on the appraiser

Appraiser independence safeguards

Effective Date for Mortgagee Letter 2009-28

The initial effective date was January 1, 2010. The date was delayed and is now February 15, 2010. All FHA case numbers issued after February 15 ,2010, will need to have the appraisal ordered using this new process. Many lenders have already made the transition.

Hopefully this will not have a negative effect for Orange County home buyers, who most likely won't even know the difference. FHA approved appraisers will still be doing the appraisals, the properties will still need to appraise at the purchase price in order to be eligible for maximum FHA financing. While HVCC has had many complaints, FHA has tried to make sure that appraisers will still be compensated by stating that "FHA appraisers are compensated at a rate that is customary and reasonable for the market area." This should keep appraisers motivated to do a good job. (Appraiser compensation has been a big issue under HVCC.) Also, FHA has made it clear that appraisals are to be assigned to appraisers who have a knowledge of the market area and geographic competency. This has been another bone of contention with HVCC.

Bottom line is the property should appraise at its true value. On a purchase transaction, the appraiser will have a copy of the purchase contract and will know the purchase price and concessions. Time will tell how this pans out. VA loans in Orange County have dealt with a similar appraisal ordering system for many years with few problems.